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Vale Inco miners at the company's operations in Sudbury, Ont. (HO)
Vale Inco miners at the company's operations in Sudbury, Ont. (HO)

Vale to invest $24-billion in 2011 Add to ...

Brazilian mining company Vale SA , the world's top iron ore producer, will invest a record $24-billion in 2011 as it diversifies toward pricier metals and profitable fertilizers.

Vale's highly awaited capex budget is 69 per cent higher than this year's outlays and will lay the groundwork for the company to vastly boost output of key products amid soaring demand for minerals from emerging markets such as China.

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"Our budget is consistent with our long-term view of demand and market fundamentals for minerals, metals and fertilizers," investor relations' director Roberto Castello Branco said on an earnings conference call.

The announcement of massive investments comes a day after Vale said third-quarter earnings more than doubled to a quarterly record of $6.1-billion, beating estimates in a Reuters poll.

Output of iron ore - which is in heavy demand as developing nations rapidly build out infrastructure - was expected to jump almost 75 per cent to 522 million tonnes per year by 2015 from current capacity of around 300 million tonnes.

The investment plan also shows major growth in output of fertilizers, which have become an increasingly important part of Vale's business due to soaring demand sparked by rising food consumption around the world.

The company, which has spent nearly $6-billion this year alone on fertilizer acquisitions, expects to double phosphate rock output and more than quadruple potash production between 2011 and 2015.

Before the end of this year, Vale expects to begin production at the Onca Puma nickel mine in Brazil and the Tres Valles copper project in Chile, operations that will also diversify its production base.

Vale's preferred shares, the company's most widely traded class of stock, dropped 1 per cent in early afternoon trading to 48.26 reais in Sao Paulo.

The strong spending plan should help Vale's relations with Brazil's government, which harshly criticized the company in 2009 for slashing its investment budget in the wake of the financial crisis.

The government still holds considerable sway over Vale, a former state-run company that was privatized in the 1990s. State-linked pension funds and the government's development bank BNDES are still key shareholders.

Analysts believe that Vale's strong cash position, which has allowed it to give shareholders billions of dollars in dividends, will spur politicians in the coming months to push for higher mineral royalties to tap into rising prices.

Vale has benefited from the global economic growth since the financial crisis that boosted commodities prices from 2009 levels, as well as a switch to a quarterly pricing system that increased the sale price it receives for its iron ore.

The quarterly system replaced the aging benchmark arrangement in which iron prices were negotiated each year among steel makers the world's top three miners, Vale and Anglo-Australians BHP Billiton and Rio Tinto .

Prices are now mostly set each quarter through indexes based on spot prices of the previous three months.

Spot market iron prices topped $180 per tonne earlier this year but are now close to $150 per tonne, compared with quarterly prices of around $135 per tonne.

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